Week 1 Lecture Advanced Cost Accounting

Step 4 compute the rate static per unit of each cost

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Unformatted text preview: ! Step 4: Compute the rate (static) per unit of each cost-allocation base that will be used to allocate the variable (and fixed) overhead costs to the output produced. Le v e ls o f Ov e r h e ad An alysis Back to T op Once these static rates are established, it is time to put them to use. T he basic level of analysis for both variable and fixed overhead is called the flexible budget variance. T he formula for both types of flexible budget variances is as follows. www.devr yu.net/r e/DotNextLaunch.asp?cour seid= 9177854&user id= 2389222&sessionid= 99773cd25f&tabid= XXQOm/ibpKPwC2XlJ5h09+ tWmZ4u5l+ 3n3iOcAou… 1/3 1/7/14 Advanced Cost Accounting Overhead flexible budget variance = Actual costs incurred – F lexible budget amount So far, so good! Both are treated at this basic level in the same way and are called a 1-variance analysis. But the analysis does not stop here. T his 1-variance analysis can be subdivided into a budget (controllable) variance and a volume (uncontrollable) variance. T his is what is called a 2variance analysis. What makes the variance controllable versus uncontrollable? It is all about what is being emphasized. T he controllable variance concentrates on looking at the variable portion of overhead while the uncontrollable variance concentrates on looking at the fixed portion of overhead. You should recall that all variable costs fluctuate and flex and by their nature, therefore, are...
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